Summary

In exercising the discretion under the Misrepresentation Act 1967 s.2(2) to award damages in lieu of rescission to a bank in respect of an agreement to waiver liability under guarantees, it was a necessary part of the judge's task to assess the prospects of the bank obtaining more, had the bank been told the truth, in light of the financial position of the guarantors.

Facts

The appellant bank (U) appealed against the decision ([2004] EWHC 1164, [2004] 2 All E.R. (Comm) 774) that it was not entitled to the sum due under two guarantees executed by the respondent husband and wife (T), or damages in lieu of but equal to that sum. There was no dispute as to the original liability of T under the guarantees. After T had made a third affidavit as to their assets and liabilities, U agreed to accept a sum that was a fraction of the amount owed to it and to waive T's liability. The waiver agreement was made "on the basis that" T had made full disclosure of all their assets and liabilities and all matters of which they were aware U might not know and that might reasonably have been expected to affect U's willingness to enter into the agreement. Further, the waiver of liability was made "provided that" in the event of late discovery of further material assets in which T had a beneficial proven interest, U would be entitled to treat the agreement as at an end. U unsuccessfully argued before the judge that (i) T was not entitled to rely on the waiver agreement; (ii) it was entitled to enforce T's liability under the guarantees due to either breaches of the waiver agreement or non-fraudulent misrepresentation. U submitted that (1) the judge failed to give effect to the clear requirement imposed by U in relation to the making of the third affidavit by T; (2) in deciding whether to exercise his discretion to grant rescission, the judge failed to expressly take into account the nature of the misrepresentation that he found to be fundamental and was wrong in his approach to the assessment of the loss it had suffered and T's insolvency was irrelevant.

Held

(1) The agreement, expressing as it did the circumstances in which the parties had agreed contractually that it should be at an end, had to be taken to have excluded any other eventuality. That seemed to be the basis of the judge's conclusion that the agreement only provided for an express consequence in the event of the discovery of assets that had not been disclosed and the judge was correct to so conclude. However, that did not preclude U from relying on any other principle of law that might entitle it to determine the agreement. (2) T was correct to accept that the phrase following "on the basis that" was indeed intended to identify the material upon which U relied in order to enter into the agreement. It followed that the misrepresentations found by the judge entitled U to recission pursuant and subject to the Misrepresentation Act 1967. The word "loss" in s.2(2) clearly included financial loss and was capable of including what might loosely be described as "detriment". The judge would have been entitled, as suggested by U, to take into account a prospect of being able to obtain more money by reason of either further negotiations had the truth been told, or as a result of the activities of the trustees in bankruptcy if it had pressed ahead to judgment. However, the judge was entitled to come to the conclusion on loss that he did. He was right to reject U's argument that in some way the damage was the full amount of the guaranteed debt. The judge correctly identified the loss in the instant case as being the lost chance of obtaining more money had U been told the truth. The financial health of T was a critical factor in evaluating that lost chance. It followed that an assessment of the prospects of obtaining more in light of T's financial position was a necessary part of the judge's task in order to determine the loss occasioned by the misrepresentation and the damage flowing from it. The judge's exercise of his discretion under s.2(2) was not flawed because he did not expressly deal with the nature of the misrepresentation.